India set to overtake China as property investment destination

India is all set to overtake China as an attractive property investment destination just as valuations of property investments in China are declining.

The property price index has been growing steadily in India in the past few years. The All India House Price Index (HPI) published by the Reserve Bank of India (RBI) grew at an annual rate of 3.5 per cent for the quarter which ended in June (Q1: 2022-23), expanding 1.8 per cent compared with the previous quarter.

In an interview with Nikkei Asia, CLI said it plans to diversify its portfolio and is looking out for investment opportunities in Vietnam and India. The aim is to build resilience in areas like supply chain and energy amid shocks to globalisation seen during the COVID-19 pandemic.

CLI whose largest shareholder is Singapore state-owned investor Temasek Holdings is one of Asia’s largest real estate investment managers with USD 90 billion worth of property assets and USD 63 billion in funds under management.

“We would love to do more in Vietnam, we are already very active in India,” said Chief Financial Officer Andrew Lim to Nikkei. “What recent events have told us is that it’s probably dangerous to put all your eggs in one basket… in an era when globalisation is increasingly being put to the test.

Lim thinks that Vietnam in the post-COVID era will emerge as an important destination for capital, especially regarding manufacturing. Whereas India has tremendous solar resources. “These are markets if you are looking for energy redundancy, energy resilience, renewable energy sources, suddenly it becomes important from that perspective.”

Meanwhile, all is not well in the Chinese property market.

Last week, the Chinese government released data that showed that new home prices fell at their fastest rate in over seven years, while property sales measured by floor area fell for a 15th straight month in October.

Based on data from the National Bureau of Statistics of China, for the year-to-date period till October, investment in real estate development fell 8.8 per cent compared with the same period in the previous year, commercial floor space sold dropped 22.3 per cent, while revenue from commercial buildings sold plummeted 26.1 per cent.

Although China is now taking measures to revive its property sector, real estate investment firms like Singapore’s CapitaLand Investment (CLI) which has a third of its assets in China are looking to diversify their portfolio. Vietnam and India were cited by CLI as possible destinations for future investments.

With the property sector accounts for about a quarter of China’s USD17 trillion economy, concerned Chinese authorities have introduced measures over the past months to inject confidence back into the collapsing sector. Earlier in November, in the most comprehensive rescue package for the sector, since it was hit by a debt crisis last year, regulators unveiled 16 supportive measures mainly aimed at boosting liquidity for developers.

Key measures include allowing banks to extend maturing loans to developers, supporting property sales by reducing the size of down payments and cutting mortgage rates, boosting other funding channels such as bond issues, and ensuring the delivery of pre-sold homes to buyers.

Some analysts say that the support measures are the strongest signal yet that the two-year clampdown on the property sector is over.

Chief China economist at UBS, Tao Wang, told CNN that the package of measures is a “turning point” for China’s property sector. Along with other policies announced earlier this year, she estimates that it could inject more than 1 trillion yuan (USD 142 billion) into real estate.

The Chinese government began trying to rein in excessive borrowing by developers to control soaring house prices in August 2020. This move unsettled the property market as the nation’s second-largest developer, Evergrande, defaulted on its debt. As the property sector crashed, several major companies sought protection from their creditors. The cash crunch meant that work on many pre-sold housing projects across the country was delayed or suspended.

The Chinese property sector was hit hard as developers lurched from crisis to crisis and halted the construction of apartments as they ran out of money. Property prices and transactions decline. Besides the mounting debt among developers, China’s strict COVID policies amid rising coronavirus cases impacted manufacturing and consumer spending.

The crisis took a turn for the worse in the middle of this year when angry home buyers refused to pay mortgages on unfinished homes, sparking fears of contagion, and causing financial markets to be spooked. Since then, authorities have tried to defuse the crisis by urging banks to increase loan support for developers so that they can complete projects. Regulators have also cut interest rates in a bid to restore buyer confidence.

Based on data from the National Bureau of Statistics of China, average new home prices in China’s 70 major cities dropped by 1.6 per cent year-on-year in October 2022, after a 1.5 per cent decline a month earlier. It was the sixth straight month of decrease in new home prices, the steepest pace in the sequence, and the fastest fall since August 2015.

Sales by the 100 biggest real estate developers shrank 26.5 per cent from a year ago in October, according to a private survey by China Index Academy, a real estate research firm. So far this year, their sales have tumbled by 43 per cent.

While welcoming the government’s property support measures, analysts remained cautious about its impact on buyer confidence.

“The property market has yet to show signs of recovery,” said Nomura analysts in a research report last week, adding that the latest measures may have “little direct impact” on stimulating home purchases, adding that the zero-COVID strategy will weigh on the sector.

Although it is felt that measures are supportive of the property market, bankers and analysts say they only address the property market’s supply problems, with the demand recovery still a key concern. Many people are still reluctant to upgrade their homes or buy new ones due to economic uncertainty and falling employment.

Despite the current doom and gloom, one company that is confident in the long-term future of the Chinese property market is Singapore’s CapitaLand Investment (CLI). It has about a third of its overall property portfolio, which are mostly non-residential commercial real estate, in China at the moment. (ANI)